Rise of Colorado's Two-Tiered Turf Spats

An oil well on the 16th green?Above-ground developers battle the oil and gas industry which often has rights to what lies below the surface.

The 16th hole of a golf course is an unlikely location for an oil well. But there it was - punctuated by two crude-oil storage tanks - when Indian Peaks Golf Course opened in August 1994.

"You teed off next to the tank battery," recalls Ken Wonstolen, then-attorney for Gerrity Oil and Gas Corp. in Denver, which operated the well. "You possibly could have hit one of those tanks."

No one liked the arrangement, but no one quite anticipated it, either. In Colorado, mineral rights are rarely held by the surface land owner as the two are often sold separately.

As development booms along the Rockies, conflict between those who own the land and those who own the mineral rights below is on the rise. One county near Denver has more oil wells than Saudia Arabia and Iran combined.

In the past, oil firms operated their wells primarily on agricultural land, but growth has meant a rapid decline in farmland and a rise in housing construction. Developers and oil firms are increasingly stepping on one another's toes in newly developed areas, and the resulting tensions are prompting calls for changes in the way the housing and oil industries conduct business.

Prior notice

Currently, state law mandates that developers notify mineral owners before they break ground on a project, but that notice often comes late in the game - if at all. And even with early notice, compromise isn't easily achieved.

In Weld County, northeast of Denver, building permits rose 20 percent this year, making it one of the fastest growing counties in Colorado. Weld County also has the state's highest concentration of gas and oil wells - almost half of Colorado's 13,000. The growth means oil companies are feeling a growing tension between ensuring business success and being a good neighbor.

Mr. Wonstolen, now vice president of environmental and public affairs for Patina Oil and Gas Corp. in Denver, observes, "It's more difficult to work with housing developers than with agricultural owners. After all, it's one thing to have a well in the middle of a cornfield. But it's another thing to be in the middle of a housing development or close to [a] backyard."

Having an oil well in the middle of a golf course is yet another thing. The Gerrity well was already active when the city of Lafayette chose the rolling Boulder County parcel for its municipal golf course. At the time, Lafayette officials expected to work around the well. But they didn't know Gerrity intended to drill three more nearby - one near the eventual 18th hole and two more amid tony homes being built beside the golf course.

Under common law in Colorado, mineral claims take precedence over surface-development rights - meaning Gerrity had every right to proceed with its plan. Still, local resistance was fierce. Lengthy negotiations ensued between Gerrity, Lafayette, and McStain Enterprises - developers of the Indian Peaks subdivision. Finally, a settlement was reached: The three parties agreed to share in the additional $40,000 cost for Gerrity to drill horizontally from the outer edge of the golf course, accessing the same well sites, and Gerrity agreed to move the existing tank battery.

Today, the wellheads and tanks sit adjacent to the golf course, obscured by a fence, well away from the homes. "I believe it's satisfactory for everyone," says Rod Tarullo, Lafayette's parks director.

But the resolution came at significant expense of time, money, and aggravation, not an unusual occurrence, say oil and gas insiders. One of the problems is that gas and oil drilling is still viewed as a non-urban activity, says Molly Sommerville, a Denver attorney for the Colorado Oil and Gas Association. "Historically, [drilling] has taken place on vacant land and agricultural land. But the oil and gas industry has to go where there is oil. They don't have a choice. [When separate mineral and surface rights are involved], early talks are key to minimizing conflict," says Ms. Sommerville.

Developers see it differently. Having to accommodate oil and gas drilling in their projects is burden enough, they say; why should they also bear responsibility for initiating negotiations?

"It behooves those in the oil and gas industry to keep up to speed on what developments are happening. They need to be involved, and it should not be just us notifying them," says Diane Reimer, a director at the Colorado Association of Home Builders.

Currently, the industry is regulated at the state level, with rules governing issues like distance between wells and setbacks from existing structures. For example, the state requires that tanks be placed at least 200 feet from a home and 500 feet from a school or church.

"I think where public health and safety is involved, the cities and counties ought to have some rights," says Jerry Percy, president of the home builders group. "Mineral owners are historically considered predominate, but I don't think they should have absolute rights."

Community concerns

Greg Thompson, a city of Greeley planner, agrees. "It would be better if surface owners' rights were equal [to mineral owners rights]." Nor should a mineral owner be able to flout local land-use designations, he adds. Greeley officials had a nasty face-off with Snyder Oil Corp. a year ago, when that company proposed putting eight oil and gas wells on vacant land 1,000 feet from an elementary school. Under state regulations, that was acceptable, but the city refused to issue a drilling permit.

"There were a lot of community concerns," says Mr. Thompson. "What if something went wrong? There can be leaks, a lightning strike, an explosion. In the middle of a cornfield, an explosion only knocks down some stalks of corn. But what happens if a flying hunk of metal lands in the school yard while kids are playing?"

In the end, Snyder withdrew the application. Patina, created by a merger of Snyder and Gerrity, now holds mineral rights on the site and could still resurrect the application. Is Patina likely to pursue that? Not a chance, Wonstolen says ruefully. "We don't want to get involved in that."